Income Contingent

Individuals who decide to take out a student loan to pay for their academic expenses are required to select a loan repayment plan when they initiate repaying their student loan. There are different types of repayment plan, each having a different payment schedule, repayment term, and eligibility requirements. Loan repayment plans available to the borrowers of federal student loans include:

Pay-as-you-earn plan

Standard repayment plan

Income-driven repayment plan

Extended repayment plan

Graduated loan repayment plan

Income-sensitive repayment plan

The selection of a loan repayment plan is an important decision as it dictates your ability to make timely monthly payments, and it is important that you seek advice from an expert who can guide you through the application process and help you understand the minute details of your selected repayment plan.

Income-Contingent Repayment Plan (ICR)

Income-contingent repayment plan (ICR) is quite similar to the income-based repayment plan. The only difference is that in order to be eligible for income-contingent loan repayment, the borrower is not required to be facing a partial financial hardship.

In income-contingent repayment plan, the principal amount borrowed by an individual is repaid over a period of 25 years in monthly installments. The monthly repayment amount is determined based on the principal amount borrowed and income and family size of the individual.

What Types of Loans are Eligible for Income-Contingent Repayment Plan?

The following types of student loans can be paid back using the income-contingent repayment plan.

Direct PLUS loans taken out by students

Direct loans, both subsidized and unsubsidized

Direct consolidation loan

In addition to this, the following types of loans are considered eligible only if they have been consolidated.

Direct PLUS loans taken out by parents

FFEL loans, both subsidized and unsubsidized

FFEL PLUS loans taken out by students and parents

FFEL Consolidation loans

Federal Perkins loans

How does the Repayment Work?

The repayment process is quite straightforward for income-contingent plan. Borrowers are required to make monthly repayments that are based on their gross income, family size, and total student loan debt. Under this plan, the amount of monthly installments is revised every year based on the changes in applicant’s gross income and family size.

After 25 years (300 months) of qualifying monthly installments, the remaining balance of student loan debt is forgiven. However, the borrower is responsible to pay income tax charged on the discharged amount. For borrowers who are working at a public service organization, the remaining amount is discharged after 10 years of qualifying monthly payments.

What are the Benefits of Income-Contingent Repayment Plan?

Income-contingent repayment plan offers several benefits. The greatest benefit is the freedom to pay back the borrowed amount in affordable monthly installments. This feature is extremely useful to individuals who are working at low-salaried job. Although the repayment term for income-contingent repayment plan is 25 years, the borrower can pay their student loan debt more quickly if they get a better job or if their financial circumstances allow them to.

Another benefit is the waiver on outstanding balance that is offered after 25 years of timely monthly payments. Individuals serving the government institutions can get their loans discharged under income-contingent repayment plan after 10 years of qualified monthly payments.